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Vol 28 - No 03 - April 2002 Editorial: the warehouse - a necessary evil? Our more mature readers may remember some dire instances of warehouses which were ‘an unnecessary evil'. My own worst experience came when working on a forecasting and scheduling project for a major OE supplier of electrical components to vehicle manufacturers. We proposed sharing information of their vehicle production schedules and their stockholdings of our components to estimate their future requirements from us. Their call-offs were seldom close to the forward orders they placed on us and the new approach brought significant improvements. However, one manufacturer had several months' stock of most components but continued to order the full amount required for future production schedules. In response to our query they advised that although they had the stock, their warehouse was so full (and haphazard) they might not be able to find and retrieve the stock when needed – so the full amount was ordered to be safe. There was poor co-ordination between production and purchasing functions and the differences had accumulated in the stores – a physically daunting sight. In recent times vehicle manufacturers have been prime examples of how to operate with minimal stocks and not have formal warehouses. Their stock accumulations, which are sometimes large, occur as finished vehicles which fortunately do not need warehousing and may be parked outside. However, their suppliers will hold stocks of finished components and some stock of their own bought-in materials and parts. Their suppliers in turn will hold some stocks of these materials and parts and so on back through the supply chain. All of these stocks will need to be accommodated and to this extent the warehouse will be a ‘Necessary Evil'. However, it must be an integral part of the supply chain operation and not exist in its own right. There have been significant reductions in supply times and response times, and these have greatly reduced the levels of stock which must be held to provide a given service. Faster transport, motorways, airfreight, express deliveries have reduced the need for regional stocks to be held close to customers. Production is more flexible with quicker changes and shorter runs, which in turn reduces the levels of cycle/batch stocks and of safety stock provisions. This reflects along the supply chain. The improved performance of achieving plans – right quantity, quality and time – has reduced the uncertainty provisions which used to be built in. Information is more readily available along the supply chain and schedules can be quickly updated, moving towards an on-line, real-time situation. Further benefits from the above factors will be subject to the law of diminishing returns. What other factors should receive our attention? One area may be the way we cover uncertainty and fluctuation by using more appropriate analyses. To cover all uncertainty only with safety stocks at item level requires large stocks; cover only the very short term at item level and provide a safety margin of production plan for each capacity group to cover the medium term. How can the better Internet information along the supply chain be used to minimise safety stock provision and to reduce the bull-whip effects? These are interesting areas to explore and if we don't others will. Related Topics:
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